MPI is seeking feedback on a range of proposed changes to the Permanent Forest Sink Initiative (PFSI) they hope will improve administrative efficiency, lower the cost of participation, enhance permanence, and increase economic returns to participants, with the overall goal of increasing an uptake of participation in the scheme.

The key proposals for improvement include:

Support 'permanence' through simplifying harvest restrictions, removing the ability of clearfell harvesting after 99 years (must exit PFSI first), and adding a penalty unit repayment obligation for owners that exit the scheme after 50 years on a sliding scale decreasing to zero by year 100 (in addition to existing obligation to repay issued units).

Remove carbon liabilities resulting from natural events that stop the forest from being re-established, and for all other events create a mandatory pooled carbon insurance of 5% units from all participants.

Increase eligibility for participation to forestry right holders.

Create a public database on the web for participants to list their forests and provide additional information about the projects including 3rd party certification for additional co-benefits.

Align the PFSI legislative and administrative framework to ETS including removing the covenant and placing the obligations under the Climate Change Response Act.

Overall most of the proposals appear sound, however there are specific points which need careful consideration including the proposal to require the use of PFSI units to meet replacement obligations (liquidity concerns).

It is also unlikely that the proposals on enhancing economic returns solely through education and marketing as opposed to regulation will achieve higher carbon prices in compliance markets where over 99% of sales occur. Generally compliance buyers in regulated markets such as the NZ ETS are only interested in buying units at least cost. Another approach proposed to Government but not included in the MPI discussion document would require NZ emitters to surrender PFSI units to meet some fixed percentage of annual emission obligations. Creating specific demand would instantly create a price differential and place a premium of PFSI NZUs.

The MPI discussion paper acknowledges that permanent forest cover obligations on PFSI participant result in a higher level of environmental benefits than ETS forests and the that objectives of Government are to see "greater use of the [PFSI] scheme to achieve important environmental and sustainable land-use objectives..." However, greater uptake of the scheme is unlikely unless there is a sufficient carbon price and a reasonable premium to justify the additional obligations that come with the PFSI.It is not clear if the proposed changes would automatically apply to existing PFSI participants or only with individual participant agreement, although this is unlikely as the existing covenants are legal agreements requiring consent of the landowner in most situations if amendments are to occur.